12% of Americans Are Immigrants, But 70% of Top Science Students Are Children of Immigrants

"One surprising characteristic unites the majority of America’s top high school science and math students – their parents are immigrants. While only 12 percent of the U.S. population is foreign-born, 70 percent of the finalists in the 2011 Intel Science Talent Search competition were the children of immigrants (see chart above). Just 12 of the 40 finalists at this year’s competition of the nation’s top high school science students had native-born parents. While former H-1B visa holders comprise less than 1 percent of the U.S. population, 60 percent of the finalists had parents who entered the U.S. on H-1B visas, which are generally the only practical way to hire skilled foreign nationals. Finalists’ parents sponsored through a family preference category represented 7.5 percent of the total, about four times higher than their proportion in the U.S.

Many immigrant parents place a heavy emphasis on education, particularly in math and science, viewing this as a path to success in America. An important implication of the study is that preventing the entry of H-1B visa holders skilled immigrants, and family-sponsored immigrants would shut off the flow of a key segment of America’s next generation of scientists and engineers - the children of immigrants - because we would not have allowed in their parents. The benefit America derives from the children of immigrants in science and math is an additional advantage the country reaps from being open to talent from around the world. Americans should take pride in our openness to individuals and their children who can succeed in the U.S. without regard to class or place of birth. Liberalizing our nation’s immigration laws will likely yield even greater rewards for America in the future."

From the Conclusion: "The results also should serve as a warning against new restrictions on legal immigration, both family and employment-based immigration, since such restrictions are likely to prevent many of the next generation of outstanding scientists and researchers from emerging in America. The talents possessed by these children of immigrants are a wonderful gift to America, a gift we can all benefit from in the future so long as we can allow talented foreign nationals to come to the United States and pursue their American dreams."

Decreases in Manufacturing's Share of GDP and Employment Are a Result of Increasing Productivity

"Between 1970 and 1990 manufacturing declined from 25.0 to 18.4 percent of GDP. International trade explains only a small part of the decline in the relative importance of manufacturing to the economy. Why then has the share of manufacturing declined?

The immediate reason is that the composition of domestic spending has shifted away from manufactured goods. In 1970, U.S. residents spent 46 percent of their outlays on goods (manufactured, grown, or mined) and 54 percent on services and construction. By 1991, the shares were 40.7 percent and 59.3 percent respectively, as people began spending comparatively more on, for example, health care, travel, entertainment, legal services, fast food and so on. It is hardly surprising, given this shift, that manufacturing has become a less important part of the economy.

In particular, U.S. residents are spending a smaller fraction of their incomes on goods than they did 20 years ago for a simple reason: goods have become relatively cheaper. Between 1970 and 1990 the price of goods relative to services fell 22.9% percent. Goods have become cheaper primarily because productivity in manufacturing has grown much faster than in services. The growth has been passed on in lower consumer prices.

Ironically, the conventional wisdom here has things almost exactly backward. Policymakers often ascribe the declining share of industrial employment to a lack of manufacturing competitiveness brought on by inadequate productivity growth. In fact, the shrinkage is largely the result of high productivity growth, at least as compared with the service sector. The concern that industrial workers would lose their jobs because of automation is closer to the truth than the preoccupation with a presumed loss of manufacturing because of foreign competition."

MP: The chart above shows the incredible increases in U.S. manufacturing productivity, which has made American manufacturing increasingly more efficient and more competitive, leading to lower prices for manufactured goods. Because the productivity gains for manufacturing have exceeded productivity gains for services-producing industries, the prices for manufactured goods have fallen relative to prices for services, which had led to decreases (increases) in manufacturing's (service's) share of GDP and employment.

World Trade and Output Have Fully Recovered

The CPB Netherlands Bureau for Economic Policy Analysis released its monthly report today on world trade and world industrial production for the month of March. Here are some of the highlights:

1. World trade volume increased in March for the seventh consecutive month, bringing global trade to a new all-time record high (see chart). This was also the fourth month in a row that world trade was above the previous peaks during early 2008 when the U.S. recession and financial crisis started spreading, causing world trade to drop by 20% in 2009. World trade is now 3.4% above the previous peak in April 2008.

2. World trade in March was 8.4% above its year-ago level, and marked the 16th consecutive month of annual growth in trade starting in December of 2009. Compared to the cyclical low in May 2009, global trade has increased by nearly 30% through March of this year. The CPB comments that "Trade momentum has been rising since November and remains strong. In the first quarter trade grew by 3.6% (non-annualized)." From the first quarter of last year, trade volume has registered an impressive 10.2% gain for the first three months of this year.

3. World industrial output declined by 0.8% in March from February, following a slight increase of 0.10% in the previous month. According to the CPB, the "March decline was caused by the disaster in Japan, where production plummeted by 14.9%," while growth in industrial output was positive in the United States, emerging Asia, and Latin America in March. For the first quarter of 2011, world output increased by 7% on an annual basis compared to the first quarter last year. Even with the Japan-related decline in March, world industrial output is 4.2% above the previous cyclical high three years ago in March 2008.

Bottom Line: Though we still face many economic uncertainties moving forward, the strong economic recovery to date for world trade and world output is encouraging and hopeful. The fact that both world trade and world output are now 3-4% above their early recession peaks is clear evidence that the world economy has fully recovered from the Great Recession and financial crisis of 2008.

Sunday, May 22, 2011

Labor Arbitrage is Disappearing for Outsourcing Manufacturing to China and Services to India

I've reported recently (see posts here and here) about the Boston Consulting Group's prediction of a pending manufacturing renaissance in America because the labor arbitrage gains from manufacturing products in China are starting to shrink and will eventually disappear. Cost advantages for manufacturing are starting to shift back to America because of rising wages in China, along with rising prices there in general and an appreciating currency.

A story in today's Washington Post is predicting the same erosion of labor arbitrage for outsourcing service-sector jobs to India:

"India’s outsourcing giants — faced with rising wages at home — have looked for growth opportunities in the United States. But with Washington crimping visas for visiting Indian workers, some companies such as Aegis are slowly hiring workers in North America, where their largest corporate customers are based. In this evolution, outsourcing has come home.

Tata Consultancy Services, for example, is ramping up its North American presence in major deals with Citibank, Dow Chemical and Hilton Worldwide. It plans to hire more than 1,000 Americans in 2011 and to base 10,000 of its 185,000 global employees in the country."

MP: Wages are increasing 11% per year in China and by 10% in India, which means that labor costs there are doubling every 7 or 8 years if those wage increases continue. Wages in the U.S. are rising by only 1.9% annually and at that rate it would take 37 years before wages would double here. At some point, the labor arbitrage advantages for China and India have to disappear. BCG predicts that “Sometime around 2015, manufacturers will be indifferent between locating in America or China for production for consumption in America."

Saturday, May 21, 2011

Consumer Sovereignty Illustrated

The Post Office might be cutting back on service and hours (it wants to end Saturday delivery by early next year), but TD Banks ("America's Most Convenient Banks") are doing the opposite, they're open 7 days per week.

Future: By 2024 the world’s enterprise servers will annually process the digital equivalent of a stack of books extending more than 4.37 light-years to Alpha Centauri, our closest neighboring star system in the Milky Way Galaxy.~Technology Liberation Front blog

Friday, May 20, 2011

Here's One Way to Eliminate Ticket Scalping

"Prince will be continuing his “Welcome 2 America” residency style tour with a gigantic stand of 21 nights at the Forum in Los Angeles, starting April 14."

MP: Increasing the supply of concert tickets to satisfy fan demand is one market-based solution to reduce or eliminate the secondary market for re-selling tickets above face value. The L.A. Forum seats about 17,000, so Prince is supplying more than 350,000 tickets for his 21 shows. If that's not enough to satisfy demand, he can keep adding shows. There is also a wide range of ticket prices starting at $25 and going up to $425, which is another market-based, approach to help achieve "concert equilibrium," similar to the dynamic approach of airline ticket pricing.

Update 1: For Prince's final shows next weekend at the L.A. Forum, there are plenty of tickets available from Ticketmaster at face value, and almost 1,700 ticket available at StubHub! starting at $45 (not sure how that compares to face value) and thousands more at SeatGeek starting at $55.

Update 2: Just to clarify, I'm not against ticket scalping. The strongest opponents of ticket scalping are usually musicians and their managers, concert promoters, and venue owners. Ironically, it's those very critics of ticket scalping who have the power to reduce or eliminate ticket scalping by: a) raising ticket prices and/or b) increasing the number of tickets available for sale. By offering 350,000 tickets for sale in L.A., some at very high prices, Prince may have successfully reduced, or largely eliminated, ticket scalping for his shows. I applaud Prince's approach and suggest that it become a model for other musicians.

What Recession? Miami Tourism Soars in 2010

MIAMI (CBS4) – "In a down economy, tourism in Miami-Dade County bucked the odds in 2010 setting records in every area, according to figures released by the Greater Miami Convention and visitors Bureau.If 2010 was a good year, 2011 promises to be even better, according to the bureau. Figures for the first quarter show hotel occupancy up more than 11 percent over the same period last year."

Markets in Everything: Post-Rapture Pet Rescue

"When the Rapture comes what's to become of your loving pets who are left behind? Eternal Earth-Bound Pets takes that burden off your mind. We are a group of dedicated animal lovers, and atheists. Each Eternal Earth-Bound Pet representative is a confirmed atheist, and as such will still be here on Earth after you've received your reward. Our network of animal activists are committed to step in when you step up to Jesus.

Our service is plain and simple; our fee structure is reasonable. For $135 we will guarantee that should the Rapture occur within ten years of receipt of payment, one pet per residence will be saved. Each additional pet at your residence will be saved for an additional $20 fee. A small price to pay for your peace of mind and the health and safety of your four legged friends."

Friday Economic Updates

1. Talent Shortage -- "Employers say a talent shortage has saddled their efforts to fill jobs, according to a survey by ManpowerGroup. More than 50% of U.S. employers reported having difficulty filling "mission-critical" positions within their companies, up from 14% in 2010. Among the hardest positions to fill included jobs in skilled trades, sales and engineering."

4.New Jersey — Some $913.4 million in new state tax revenue has been collected or is expected to come in through next July, which offers a possible answer to some of the state’s immediate budget problems.

Coming Soon to America: Increased Wait Times?

GUARDIAN -- "Doctors in the U.K. are blaming financial pressures on the National Health Service (NHS) for an increase in the number of patients who are not being treated within the 18 weeks that the government recommends. New NHS performance data reveal that the number of people in England who are being forced to wait more than 18 weeks has risen by 26% in the last year, while the number who had to wait longer than six months has shot up by 43%.

In March, 34,639 people, or 11% of the total, waited more than that time to receive inpatient treatment, compared with 27,534, or 8.3%, in March 2010 – an increase of 26% – Department of Health statistics show. Similarly, in March this year some 11,243 patients who underwent treatment had waited for more than six months, compared with 7,841 in the same month in 2010 – a 43% rise."

Thursday, May 19, 2011

Just How Close to a Train Track Can You Set Up a Vegetable Market? Pretty Damn Close!

4 of Our Top 5 Imports Have Fallen in Price

The chart above shows the top five imports and exports at the Port of Los Angeles for 2010, based on the number of loaded containers. This Business Insider story points out that the top five U.S. exports are raw materials, while the top five imports are finished goods.

Something else about the top five imports that might be interesting is to compare the changes in the price indexes for those items over the last ten years (April 2001 to April 2010) to the overall change in the CPI during that period:

Bottom Line: The real prices of furniture, toys, apparel and footwear have all fallen substantially over the last ten years, by double-digit percent declines, and the real price of auto parts has increased. Furniture, toys, apparel and footwear all require very labor-intensive production processes, and by purchasing these products from Mexico, China, Vietnam and India where labor costs are low, American consumers have probably saved many millions, if not billions of dollars.

It's probably not a coincidence that the top imports coming through the L.A. Port are some of the products that have fallen the most significantly in real price over the last decade, to the great benefit of America's consumers. Remember that countries don't trade with each other at the national level, people trade; and t's American consumers who are shopping globally for the best price and value. For furniture, clothing, footwear, and toys, cost-conscious American consumers are wisely taking advantage of the falling real prices for those items that are imported from overseas, and that bargain-hunting consumer behavior ("consumer greed") is being reflected in the import volumes at the L.A. Port.

Amazon: Kindle ebooks Outsell Printed Books

"Amazon has announced that it now sells more Kindle ebooks than all print books – that's hardcover and paperback combined – through the Amazon.com site. Introduced less than four years ago, the Kindle has quickly become Amazon's top selling product, and now digitised books for the reader have become more popular with its customers than their paper and ink fore-runners."

"Big Computer" Made Almost $100 Billion in 2010

The "Big Five" made almost $68 billion in profits last year. No, not the "Big Five" oil companies that have been in the news lately for making $77 billion last year in profits. I'm talking about that other "Big Five": Microsoft ($18.7 billion), IBM ($15 billion), Apple ($14 billion), Intel ($11.4 billion) and Hewlett-Packard ($8.8 billion). And when you add the next five most profitable computer companies - Google ($8.5 billion), Cisco ($7.8 billion), Oracle ($7.7 billion), Dell ($2.63 billion) and Ebay ($1.8 billion) - the "Big Ten" raked in almost $100 billion last year in "windfall" profits last year ($96.1 billion), boosted by strong demand for IT products as the U.S. and global economies recovered from the Great Recession.

Suppose that Congress next investigated "Big Computer" for earning almost $100 billion in record profits last year, and imposed a higher tax burden on the "Big Ten."

Q: What would likely happen to computer prices for the "Big Ten's" products; and what would likely happen to "Big Ten" spending on capital equipment and research? A: Prices would probably be higher and investment spending would probable be lower. And that's exactly what would likely happen to oil prices and investment spending by the other "Big Five."

Corn Yields Have Increased Six Times Since 1940

The chart above displays annual U.S. corn yields (bushels per acre) back to 1866 (USDA data here). After remaining flat between 1866 and 1939 at about 26 bushels per acre, corn yields started increasing dramatically in the 1940s due to the introduction of hybrid seeds, and the widespread use of nitrogen fertilizers and herbicides (source). By 2009, average corn yields had increased by more than six times to a record high 165 bushels per acre, before falling last year to 153 bushels per acre.

According to the Corn Farmers Coalition:

"Farmers today grow five times as much corn as they did in the 1930s – on 20 percent less land. That is 13 million acres or 20,000 square miles, twice the size of Massachusetts. The yield per acre has skyrocketed from 24 bushels in 1931 to 154 now, or a six-fold gain. And the Agriculture Department expects the average yield per acre to double in the next 25 years."

MP: I'm not sure how this fits in with the "Great Stagnation" story, but it appears that the amazing productivity gains for corn production over the last 70 years will continue into the future.

HT: Lee Coppock

Update: The chart below shows that real, inflation-adjusted corn prices have trended downward over time as corn yields have increased, from $16 per bushel in 1948 (2010 dollars) to about $4 per bushel in 2010.

Wednesday, May 18, 2011

Partisan Grading: Democratic Professors Are More Likely to Redistribute Grades Than Republicans

From a very interesting forthcoming paper in the American Economic Journal titled "Partisan Grading" by economists Talia Bar (Cornell) and Asaf Zussman (Hebrew University):

Abstract: We study grading outcomes associated with professors in an elite U.S. university who were identified using voter registration records as either Republicans or Democrats. The evidence suggests that student grades are linked to the political orientation of professors: relative to their Democratic colleagues, Republican professors are associated with a less egalitarian distribution of grades and with lower grades awarded to Black students relative to Whites.

Results: The variance of grades is higher in courses taught by Republicans than in courses taught by Democrats. Moreover, in additional analysis we find that relative to their Democratic colleagues, Republican professors tend to assign more very low and very high grades: the share of the lowest grades (F, D-, D, D+, and C-) out of the total is 6.2 percent in courses taught by Republican professors and only 4.0 percent in courses taught by Democratic professors; the share of the highest grade (A+) out the total is 8.0 percent in courses taught by Republican professors and only 3.5 percent in courses taught by Democratic professors. Both differences are highly statistically significant. These suggestive results are consistent with our grading egalitarianism hypothesis.

A different illustration of the relationship between political identification and grading egalitarianism is contained in the chart above. The figure displays mean grades by student SAT score ranges in courses taught by Republican and Democratic professors. The observed pattern is consistent with the hypothesis that Republican professors are associated with a steeper slope of the grade-ability profile, i.e. with higher returns to student ability.

Conclusion: We found that relative to their Democratic colleagues, Republican professors are associated with a less egalitarian distribution of grades and with lower grades awarded to Black students relative to Whites.

Professors control the allocation of grades which serve as the primary currency of academia. Our results suggest that the allocation of grades is associated with the worldview or ideology of professors. This finding may inform the public debate on potential reforms to university grading practices. To the extent that the application of objective standards is an important university goal, policy makers should consider limiting the discretion professors enjoy when it comes to grading and making it more difficult for them to use student characteristics as factors in the grading process.

MP: One conclusion here might be that highly motivated, high-achieving students should prefer classes from Republican professors because it's more likely they'll be rewarded with a really high grade (A or A+), and less motivated, lower-achieving students should prefer classes from Democratic professors, because it's less likely that they'll receive a really low grade.

TIPS Breakeven Spread Falls to Three-Month Low

The "breakeven rate" - the difference between 10-year nominal Treasury yields and 10-year Treasury Inflation Protected Securities (TIPS) yields - is one market-based measure of expected future inflation. As of yesterday the breakeven rate was 2.30%, down 30 basis points from the recent peak of 2.65% on April 11, and the lowest level in three months (since February 17).

I wouldn't want to give Obama or Congress any ideas, but in the first quarter of 2011, Apple was more profitable than ExxonMobil based on both having a higher profit margin (24.27% vs. 9.30% for Exxon) and higher profits per employee ($128,470 vs. $127,392 for Exxon). In addition, Apple's effective income tax rate was only 24.22% compared to Exxon's 42.2% rate, so it must be getting some very generous tax breaks and subsidies?

But starting this summer, D.C. can charge companies using curbside space a public space rental fee of $80,000 a year or more. Pete Pantuso, head of the American Bus Association, says that this fee will be passed along to the riders in the form of higher prices. And he says D.C. is using a booming local industry as an ATM."

Tax Rates (%) X Tax Base = Tax Revenue ($)

An endless source of confusion seems to exist regarding the frequently used term "raising taxes" (e.g., do a Google search for "raising taxes on the rich" and you'll find almost 3 million results), which usually refers to a proposal to raise tax rates in an attempt to raise tax revenues. Not so fast. It doesn't always work that way, and frequently works in reverse - higher tax rates result in lower, not higher, tax revenue collected. Here's the relevant formula:

TAX RATE (%) X THE TAX BASE = TAX REVENUE ($)

One explanation for the confusion is that the word "tax" appears in all three relevant terms in the equation, so it's easy to conflate the terms "raising taxes," "raising tax rates" and "raising tax revenues." What we know for sure is that higher tax rates create disincentives for the activity being taxed (income, capital gain, consumption), which will cause the "tax base" to shrink. Depending on how much the tax base shrinks in response to higher tax rates, tax revenue could increase, decrease or stay the same.

Any discussion about "raising or lowering taxes" is always incomplete without considering how changes in "tax rates" will affect the "tax base," which then determines how the amount of tax revenue actually collected with change.

"History has shown repeatedly, under administrations of both political parties, that there is no automatic correlation between tax rates and tax revenues.

When the tax rate on the highest incomes was 73 percent in 1921, that brought in less tax revenue than after the tax rate was cut to 24 percent in 1925. Why? Because high tax rates that people don't actually pay do not bring in as much hard cash as lower tax rates that they do pay. That's not rocket science.

Time and again, at both state and federal levels, in the country and in other countries, tax rates and tax revenue have moved in opposite directions many times. After Maryland raised its tax rates on people making a million dollars a year, there were fewer such people living in Maryland-- and less tax revenue was collected from them.

There is no automatic correlation between the direction in which tax rates move and the direction in which tax revenues move. Nor is this a new discovery."

Some Of Us Aren't Grossed Out By Profits

"Some of us, believe it or not, aren’t completely grossed out by the notion of profit — even a lot of profit. Strong earnings are good news not only for those dastardly Oil Barons, but for the millions of people who depend on the industry for their employment, as well as the vast number of Americans who rely on investments in oil to bolster their pension funds, retirement funds, college funds, etc.

An industry as useful, wide-ranging, and essential to the economy as fossil fuel is inevitably going to entail talk of “billions.” Oil corporations are indeed “highly” profitable, averaging around a 7–8 percent profit margin the past few years — but they’re less profitable than government, which hauls in a higher margin on, for example, gas taxes.

How much would Harry Reid and friends save Americans by ending these tax perks? In five years, an estimated $18 billion. To put this savings in perspective, the federal government borrows around $28 billion every week. To make this kind of trivial savings the focus of a high-profile plan to is to engage in transparently political gotchas."

Monday, May 16, 2011

The Economics of Globalization Are Changing Fast And Are Starting to Favor Moving Back to America

"Labor arbitrage—taking advantage of lower wages abroad, especially in poor countries—has never been the only force pushing multinationals to locate offshore, but it has certainly played a big part. Now, however, as emerging economies boom, wages there are rising. Pay for factory workers in China, for example, soared by 69% between 2005 and 2010. So the gains from labor arbitrage are starting to shrink, in some cases to the point of irrelevance, according to a new study by Boston Consulting Group (BCG).

“Sometime around 2015, manufacturers will be indifferent between locating in America or China for production for consumption in America,” says BCG's Hal Sirkin. That calculation assumes that wage growth will continue at around 17% a year in China but remain relatively slow in America, and that productivity growth will continue on current trends in both countries. It also assumes a modest appreciation of the yuan against the dollar.

BCG lists several examples of companies that have already brought plants and jobs back to America.

1. Caterpillar, a maker of vehicles that dig, pull or plough, is shifting some of its excavator production from abroad to Texas.

2. Sauder, an American furniture-maker, is moving production back home from low-wage countries.

3. NCR has returned production of cash machines to Georgia (the American state, not the country that is occasionally invaded by Russia).

4. Wham-O last year restored half of its Frisbee and Hula Hoop production to America from China and Mexico."

Markets in Everything: Pay-What-You-Want Panera

USA Today -- "A Pay-what-you-want Panera in Clayton, MO is being called a success. The menu board lists "suggested funding levels," not prices. Payments go into a donation box, though the cashiers provide change and handle credit card payments.

The majority of patrons pay the "suggested funding level" or more. Statistics provided by Panera indicate that roughly 60% leave the suggested amount; 20% leave more; and 20% less. One person paid $500 for a meal, the largest single payment."

Are Oil Prices a Threat to the U.S. Economy?

a) energy spending as a percent of disposable income is only 5.2% allowing to absorb temporarily high oil and gas prices, b) we have the most energy efficient economy in history, with oil consumption per real dollar of GDP at an all-time low, and c) while real output is now above its pre-recession level, U.S. oil consumption is 2 million bbls. per day below pre-recession levels. Taken together, these three factors explain why we're better prepared for higher oil and gas prices than ever before.

The Deleveraging of American Households

A week ago I featured the chart above showing that the household debt service ratio (red line) was 11.75% in the last quarter of 2010, which is the lowest ratio since the first quarter of 1998, and the household financial obligations ratio at 16.64% in Q4 2010 was the lowest since the first quarter of 1995.

Dennis Cauchon has an article in today's USA Today that offers some explanations for the trend in the graph above:

"Americans are reducing mortgage payments at a record clip, directing cash that once went for debt into consumer spending and savings. Low interest rates, defaults and refinancings have shaved more than $100 billion off the nation's annual mortgage bill — an amount comparable to all unemployment benefits for one year or this year's Social Security payroll tax cut.

Homeowners have trimmed interest payments alone by 11% — or $67 billion a year — from the peak in 2008, according to the Bureau of Economic Analysis (BEA). The savings come equally from grabbing lower interest rates and reducing what's owed by paying down principal or defaulting on loans. The nation has slashed total mortgage debt from nearly $11 trillion at the mid-2008 peak to $10.3 trillion in the first three months of 2011, the BEA reports."

MP: Many of the comments on the original CD post mentioned some of the same reasons for the significant deleveraging of American households over the last several years or more.

Real Profits of U.S. Manufacturing Corporations Have Recovered To All-Time Record-High Levels

Mike Mandel has a post "New Manufacturing Data Show Weaker Factory Recovery, Deeper Recession," where he presents some new Census data on factory shipments of manufactured goods through the first quarter of 2011. Mike concludes that "real shipments are still 15% below their peak, and asks "Now that hardly looks like a recovery at all, does it?"

But Census also reported recently on U.S. manufacturing after-tax profits (see CD post here), and those data show that real manufacturing profits have completely recovered from the recession, and reached an all-time high in the fourth quarter of last year (see chart above, adjustment for inflation made using the Business Sector Deflator). Fourth quarter 2010 profits of $135.5 billion were 10% above the pre-recession level of $122.9 billion in the fourth quarter of 2007.

Bottom Line: Due to cost savings, improved productivity and increased efficiencies achieved during the last three years, U.S. manufacturing corporations are now more profitable than ever before, and that's part of the reason for all of the "happy talk" about manufacturing's comeback. In the end, it's profitability that's the most important gauge for the health of a company or industry, not the amount of shipments, output, or employment levels.

For the manufacturing sector to have record-high profits today at a level of output 15% below the peak in 2007 is much better than the reverse - a record level of output with profits 15% below a 2007 peak. With record-high profits, American manufacturing corporations have the resources to make the very investments in research, technology and capital equipment that will allow them to become even more efficient, productive and profitable in the future. The future of America's manufacturing sector has never looked brighter.

Money-Making Speculators Must Stabilize Markets; Only Money-Losing Speculators Can Destabilize

"People who argue that speculation is destabilizing seldom realize that this is largely equivalent to saying that speculators lose money, since speculation can be destabilizing in general only if speculators sell when the currency (or commodity) is low in price and buy when it is high."

~Milton Friedman, Essays in Positive Economics (p. 175)

The chart above illustrates Friedman's point. The blue line above represents commodity (or currency) price movements over time in a market WITHOUT speculators (due to a government ban on futures trading, e.g. onions), and the red line represents that same market WITH the fictional destabilizing speculators (as portrayed by the media and politicians) now being allowed to trade. For speculators to destabilize that market, they would have to make prices more volatile over time, and that is what the red line illustrates - there are greater price swings, and greater price volatility (both up AND down) WITH speculators compared to price movements over time WITHOUT speculators.

But saying that speculators destabilize the market above is also the same thing as saying that destabilizing speculators must BUY when the market prices are at a HIGH point (driving them up even higher) and must SELL when the market prices are at a LOW point (driving them even lower). And as we all know, buying HIGH and selling LOW is a sure way to lose money, and speculators can then only be destabilizing if they are LOSING money, as Friedman points out, and therefore the chart above can NOT represent reality. Conversely, if and when speculators are making money, they have to be buying low and selling high, which would be the same thing as saying that they are stabilizing markets and reducing price variability. And the more "excessive speculation" and "unfair profiteering" they are accused of, the GREATER the role speculators play in stabilizing prices and markets.

Bottom Line: If speculators are making money, they MUST be stabilizing markets. If speculators are losing money, they MUST be destabilizing markets (fictional chart above). But speculators can NOT make money and destabilize markets at the same time.